Transcript: Nightly Business Report – April 26, 2018


(NASDAQ:AMZN), Intel (NASDAQ:INTC) and Microsoft (NASDAQ:MSFT) trounce
earnings expectations, and some say this critical sector is a good
investment for your money.

averages get a big lift even as a number of companies say inflation
pressures are mounting.

HERERA: Teenage hacker. The incredible story of a young man who hacked
Russian hackers and is now making millions helping companies defend
themselves against people like him.

Those stores and more tonight on NIGHTLY BUSINESS REPORT for Thursday,
April 26th.

GRIFFETH: And we do bid you a good evening, everybody.

Stocks ran higher at the open this morning and this time the gains held for
a change. Earnings reports from some of the biggest U.S. companies at a
decline in the ten-year treasury yield combined to send the major averages
sharply higher. The Dow was up more than 300 points at its peak today,
closed up 238 to 24,322, the Nasdaq was up 114, the S&P rose by 27.

HERERA: And the technology sector led the market higher today. After the
closing bell, Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN) and Intel
(NASDAQ:INTC) all easily topped earning estimates.

So, we start with Amazon`s quarter. The company`s results were driven by a
surge in online shopping and strong demand for its cloud services. It
earned $3.27 a share. Analysts were expecting a $1.26. Revenue climbed by
43 percent to come in at $51 billion.

Investors cheered. They sent the stock to a record in initial after-hours

Deirdre Bosa has the one key takeaway from Amazon`s quarter.


from Amazon (NASDAQ:AMZN), the company is firing on all cylinders and says
it will continue to deliver profits to investors. Not only are its core
businesses ecommerce and cloud computing performing above expectations, but
newer businesses like brick and mortar and subscription services are
growing at a faster click than Wall Street expected.

Amazon (NASDAQ:AMZN), a company that used to sacrifice profit for growth is
now exercising more fiscal discipline and telling investors to expect
operating income of $1.1 billion and $1.9 billion in the current quarter.
At the same time, Amazon (NASDAQ:AMZN) is spending big on new businesses
from original content to hardware to groceries and to gaining more market
share in regions like India.

For NIGHTLY BUSINESS REPORT, I`m Deirdre Bosa, San Francisco.


GRIFFETH: Now to Dow component Intel (NASDAQ:INTC) which reported better
than expected earnings and revenue driven by higher demand for
semiconductors for datacenters. Intel (NASDAQ:INTC) earned 87 cents a
share. That was 15 cents better than estimates. Revenue came in at $16
billion. That was up 8 percent from last year and about $1 billion more
than expected. The stocks rose sharply in initial after-hours trading.

And Aditi Roy has more on Intel`s report for us.


(NASDAQ:INTC) earnings today as the company handedly beat analysts`
expectations on a number of key metrics. One of those critical metrics,
the data center group revenue number which came in at $5.2 billion versus
analyst`s expectations of $4.84 billion. That number referring to chips
use and servers to support cloud computing systems. It`s part of the
business analysts are watching very closely and the company is also
investing in since cloud is a growing category and more and more industries
are shifting towards the cloud.

The company also beating on revenue coming from their client computing
group. That referring to the PC and mobile chips. Two headwinds in this
category for the company, competition from companies like AMD and the
decline of PC sales.

For NIGHTLY BUSINESS REPORT, I`m Aditi Roy, San Francisco.


HERERA: And fellow Dow component Microsoft (NASDAQ:MSFT) also topped Wall
Street forecast on strong demand for its cloud computing services. Its
flagship cloud product called Azure, which competes with Amazon
(NASDAQ:AMZN) Web Services, hosted revenue growth of 93 percent in the most
recent quarter. Azure holds the number two position in the cloud computing
market. The result sent the shares down, though, and then back up in
after-hours trading.

GRIFFETH: So, let`s a little dig deeper into these tech earnings. Joining
us right now sharing his thoughts, Dan Morgan is senior portfolio manager
and vice president at Synovus Trust.

Dan, good to see you. Thanks for joining us again.


GRIFFETH: The word we heard in all three reports, cloud, the growing
influence of that in the technology world for companies that are not known
for. You got retail for Amazon (NASDAQ:AMZN), operating systems for
Microsoft (NASDAQ:MSFT), and chips for Intel (NASDAQ:INTC), but they all
are seeing more of a force in the cloud right now, aren`t they?

MORGAN: Yes, Bill, that was the real, you know, picture in terms of these
companies, you know, Amazon (NASDAQ:AMZN) with AWS. That`s their
infrastructure, the service. That was up as you talked about, $5.5 billion
in revenue. That was a huge number.

Microsoft (NASDAQ:MSFT) who is kind of an old legacy company like an IBM,
who`s made this conversion over off the desktop in the cloud, you know,
commercial cloud did over $6 billion. And then Intel (NASDAQ:INTC) with
their data center group up 23 percent. So, all of these companies, Intel
(NASDAQ:INTC), Microsoft (NASDAQ:MSFT), old legacy companies that are
making a good transition into cloud and like you say have a big retailer
like Amazon (NASDAQ:AMZN), you don`t think of when you buy something off
the Internet, they`re a huge player. They`re the number one player in
infrastructure as a service.

So, really cloud is a huge force now in technology.

HERERA: And you make the point as I look at my notes that for Amazon
(NASDAQ:AMZN), any way, their AWS unit is somewhat under appreciated or not
basically valued correctly by the street. Why?

MORGAN: Well, you know, Sue, it`s interesting because we do think when we
talk about Amazon (NASDAQ:AMZN), we talk about the Whole Foods acquisition
or we talk about them getting into health care, we talk about, you know,
100 million prime users. We just hit that target recently.

So, we kind of forget about the fact that they are a huge player in this
enterprise area in the cloud space. They are the number one leader in
that. You mentioned Azure which is Microsoft`s product in that space also,
Google (NASDAQ:GOOG) Cloud is in that space too. But they are the clear
leader in terms of total projected revenues and growth.

So, it is interesting that a lot of people don`t think of Amazon
(NASDAQ:AMZN) as an enterprise cloud play. They think of it as an online
marketer. So, interesting.

GRIFFETH: The stock prices in the clouds that`s for sure.

MORGAN: Yes, yes.

GRIFFETH: Thanks, Dan. Appreciate it.

MORGAN: OK, thanks, Bill. Thanks, Sue.

GRIFFETH: Dan Morgan with Synovus Trust, joining us.

HERERA: Well, one of the big themes emerging from this earnings season so
far is inflation. A number of companies are talking about how they`re
facing rising costs.

Bob Pisani has more.


halfway point for earnings and they`ve been excellent. But one common
theme that`s been raising a red flag is buyer inflation. It`s being a very
hot topic on the conference calls. Now, they`re mainly talking about
commodity inflation around metal prices like aluminum and steel and oil
prices, which translates to the higher packaging costs for many companies.
But some are also mentioning higher wages.

So, Caterpillar (NYSE:CAT) this week expects steel and other commodity
costs to be a headwind all year. 3M (NYSE:MMM) saw higher than anticipated
costs for transportation and raw materials, derived from crude oil,
Kimberly-Clark (NYSE:KMB) said margins were impacted by significant
commodity inflation. Whirlpool (NYSE:WHR) said profits took a hit from raw
material inflation. Proctor & Gamble and Ford, Ingersoll Rand, they also
highlighted rising commodity cost and Avery Dennison (NYSE:AVY), which
makes packaging materials, they saw price increases for petrochemicals and
paper as well. Several companies like Chipotle separately brought up
higher wages as well.

So, how`s everybody coping? A few said they were just going to raise
prices in response. AO Smith which makes water heaters and air
purifications products is raising the price tag on its products by 12
percent because of higher steel prices, and rising freight costs. But not
everybody can afford to raise prices. Autos, apparel, tech hardware and
household personal products are already seeing some of their profits under
pressure. All of these sectors are impacted by higher commodity cost.

For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.


HERERA: And higher commodity cost could ripple through the stock market
and the economy over the next week and a half or so. We`ll learn a lot
more about both with the release of more earnings guidance, economic data,
a Fed meeting and the employment reports.

So, joining us to talk about all of that is Ryan Sweet. He`s direct of
real time economics at Moody`s Analytics. Also joining us tonight is
Michael Farr, founder and president of Farr, Miller and Washington.

Good to see you, gentlemen. Welcome.


HERERA: Lots to talk about.

Ryan, I`m going to start with you. Of those things that I highlighted,
which one of the economic reports are you going to be watching the most

the next week or so, there are two key ones. First comes tomorrow and it`s
not GDP, it`s the employment cost index which is a very good measure of
wage and benefit cost in the United States. And the unemployment rate in
the U.S. is trending lower and having nowhere to go but even lower.

Wage pressures are just going to naturally begin to build and that`s going
to put upper pressure on company`s cost and generate some inflation. And I
think the Fed is more sensitive to wage pressures now than they are going
to be paying close attention to GDP, and next week is the core PC deflator,
which the Fed`s preferred measure of core inflation. And they`re going to
be some favorable base effects and we`re going to get a year over year
number in March that`s very close to the 2 percent target and how markets
interpret that is going to be key in assessing how markets do next week.

GRIFFETH: And, Michael, we heard from some companies reporting this week
that they`re already seeing raw material cost creep into their business
right now. Are you investing as though you`re anticipating higher
inflation down the road?

FARR: Bill, I`m investing looking for companies that can continue to grow.
I think you have to price in a certain amount — I don`t know whether we`ll
call it inflation but certainly we`re going to have higher rates, right? I
mean, the Fed has changed direction that`s clear. They`re going to
continue to increase those short-term rates.

The cost of money is going up. That`s inflationary and we saw in — when
we looked at earnings yesterday we heard from them that they were seeing
higher costs of goods. So, I think, you know, you have to listen to Ryan
Sweet, too, who says you`ve got to look at the employment cost because
these are going to sooner or later be passed on in end costs to the

So, it`s all in there, yes. Margin pressures is what we`re going to see.


HERERA: All right. So, Ryan, if indeed we get strong readings in the PCE
and other indexes, does it change your assessment of what the Fed is going
to do or do you think the Fed would reassess?

SWEET: I think the Fed is pretty much on course to raise rates a total of
three to four times this year. They signaled three in their summary of
economic projections. In the so-called dot plot, which shows all the
participants expectations of where the Fed fund rates can be at the end of
the year, end of this year and next year, if you take out the lowest two,
we get four rate hikes this year.

And I think we have core inflation moving closer to the Fed`s target with
the unemployment hitting below 4 percent fairly soon. I think the Feds is
going to feel very comfortable in where the economy`s headed, where
inflation is headed because monetary policy affects the U.S. economy
overlags. So, actions today effect — by raising interest rates, will
affect the economy down the road.

So the Feds got to be very forward looking and I think the Fed is trying to
pull off the miracle in trying to land this plane perfectly on the tarmac.
The issue is that they`re worried that the unemployment rate is going to
fall too low and the economy is going to eventually overheat.

GRIFFETH: And we need Sullenberger –

FARR: Ryan, isn`t there a question that the Fed could overstep? I mean,
they did in 1937, they could throw us back into recession. And, look, Ryan
is a graduate of the University of Delaware, fabulous program, David Lyons
put on the economic summit every year there, through Carlos (INAUDIBLE) and
the economic and entrepreneurship forum. This is a great school.

But I got to hear you tell me, do you think the Fed can overstep here and
send us to recession?

SWEET: I do. I don`t think it`s an immediate threat, not in the next year
or two. Usually the risk of a recession really increase substantially when
the Fed raises the Fed funds rate, the real Fed funds rate 50 basis points
above the terminal Fed funds rate. So, right now, markets are pricing at
terminal Fed funds rate, nominal of 2.5 percent. So, real, that`s about
half 50 basis points.

So, we have a little bit of time.


SWEET: If you look at the Fed`s projections were going to overshoot just a
little bit. But I do think that as inflationary pressures begin to
develop, the Fed just naturally — they`ve done it in the past, they may
panic, raise rates a little bit and that may be the one that — that`s
going to trigger the next recession.

HERERA: Gentlemen, we`ve got to go. Thanks so much. Ryan Sweet and
Michael Farr.

GRIFFETH: Still ahead, Chipotle entering a new era with a new CEO at the


GRIFFETH: Wells Fargo (NYSE:WFC) is reportedly the target of yet another
probe according to “The Wall Street Journal.” The Labor Department is now
looking into whether the bank has been pushing 401(k) participants into
more expensive IRAs. Regulators also want to know if Wells Fargo
(NYSE:WFC) pressed account holders to buy in-house funds which generated
more revenue for the company.

HERERA: Chipotle investors have something to cheer about, yes, you heard
me correctly. The burrito chain appears to be winning back customers
following a string of E. coli outbreaks more than two years ago. Chipotle
reported blowout quarterly results that sent the stock 24 percent higher.
One of its biggest moves since the chain went public in 2006.

Kay Rogers (NYSE:ROG) talked to the new CEO about his plan to bring new
life into the embattled restaurant chain.


BRIAN NICCOL, CHIPOTLE CEO: The food looks great.

executive officer in place, Chipotle Mexican Grill (NYSE:CMG) is hoping to
usher in a new era. Brian Niccol, former CEO of Taco Bell, took the helm
last month, replacing founder and CEO Steve Ells.

Niccol, known for his innovative style of marketing and bringing unique
items to the menu, has analysts and investors optimistic he`ll be the
change the burrito chain with nearly 2,500 locations and 70,000 employees.

Niccol`s top priority in the new role, reminding people why they love

NICCOL: I think there`s huge innovation opportunities, frankly, across our
menu. We need to focus on leveraging the platform that we have, the food
is cravable and I think there`s opportunities to use what we have and
present it in new forms, new varieties to get people just reengaged with
what they love about Chipotle.

ROGERS: This comes after a string of food borne illness outbreaks that
began in 2015, hitting the company`s stock and tarnishing its image.

They plan to focus on marketing. Their slogan is: food with integrity.
They`ll also invest in digital and delivery innovation, as well as their
employees. And they`re going to rely on these fresh ingredients that
customers have come to love here at Chipotle.

NICCOL: There`s always an opportunity for us to be even more cognizant of
the financial commitments that we make, as well as the innovation
commitments we make, executing a guest experience, giving every customer
the experience they want and expect from Chipotle.

ROGERS: They`re also planning to test out new items on the menu.

NICCOL: Breakfast will not be coming any time soon, but one thing I can
tell you is, our food tastes great even earlier than 10:45 in the morning.
I think we`re going to be experimenting with, can we open a little bit
earlier and adding hours on the front end.

ROGERS: So far, investors showing they have a strong appetite for the
change in leadership at the brand as the stock continues to climb more than
50 percent since Niccol was announced CEO in February.

For NIGHTLY BUSINESS REPORT, lm Kate Rogers (NYSE:ROG) in Denver.


GRIFFETH: Starbucks` profit margin shrinks and that`s where we begin
tonight`s “Market Focus”.

After the bell tonight, the coffee chain said that restructuring costs and
an increase in employees` benefits caused operating margins to decline.
Overall, total sales rose and topped expectations. The company also
reiterated its 2018 forecast. Shares initially fell in the after-hours but
finished the regular session up nearly 3 percent to $59.38.

Also right after the bell tonight, Mattel (NASDAQ:MAT) said that higher
sells for a couple of old stalwarts Barbie and Hot Wheels helped sales rise
above expectations. The toy maker did report a loss but said it`s working
on profitability and working through challenges caused by that Toys “R” Us
liquidation. Shares initially popped in the extended session after ending
the regular day up more than 3 percent at $13.98.

And Southwest Airlines (NYSE:LUV) said that bookings have weakened
following last week`s engine explosion that left one passenger dead. The
airline said that that softness was expected but added that its probably
going to mean a measure of revenue turns negative for the quarter overall.
Southwest did report stronger earnings for the last quarter and said it`s
in a position to weather rising fuel costs.


GARY KELLY, SOUTHWEST AIRLINES CEO: If prices continue to go higher from
here, we have very solid protection in place. Since December, we`ve firmed
up 80 options for firm delivery on the Max. The Max aircraft is 13 to 14
percent more fuel efficient. So, we`ll just continue to look for ways to
be more fuel efficient, continue to look for ways to mitigate price —
sharp price increases with our hedging program.


GRIFFETH: Shares of Southwest fell nearly 1 percent today to $53.30.


HERERA: Bill, Pepsi said strong demand in developing markets helped
revenue beat estimates. Sales in the company`s North America beverage
division continue to fall but Pepsi said it is confident that greater
investments in marketing will reverse that trend.


HUGH JOHNSTON, PEPSICO CFO: Gatorade went through a bit of a downturn but
it`s now come back. Mountain Dew has comeback quite nicely. So, we`re
really down to getting the Pepsi business back on track.

We ramped up our advertising in the first quarter. We were up double
digits and as you see us increase advertising further, I think you`ll see
the market share performance of the cola business specifically improve as


HERERA: Pepsi shares climbed 2 percent to $103.26.

General Motors (NYSE:GM) made fewer high margin pickup trucks in the latest
quarter but still delivered an earnings beat. The production lulls were
caused by assembly plant changes that GM made as part of its strategy to
shift its focus from sedans to more profitable larger vehicles. During
that period, GM said its China market performed well.


CHUCK STEVENS, GENERAL MOTORS CFO: We had, you know, an outstanding
quarter in China, record equity income of $600 million. We continue to
perform very, very well. We`re excited about our product launch portfolio
there. We expect to see another strong year of equity income in China.


HERERA: GM shares rose just a fraction to $38.25.

And higher oil prices and cost cuts helped ConocoPhillips (NYSE:COP) top
expectations. The exploration and production company also reaffirmed its
capital budget for the year and it raised its production outlook. The
shares rose nearly 3 percent to $66.97.

GRIFFETH: Well, the heads of North and South Korea are meeting tomorrow
for the first time during that historic inter-Korean summit, and the
meeting is going to take place in the heart of the demilitarized zone, an
area you might be surprised to learn is home to some very big companies.

Eunice Yoon is there for us tonight.


Korean city of Paju, which is a major production center for LG Display
(NYSE:LPL) and other LG companies. This complex we`re at now is the
world`s biggest manufacturing hub for the panel that go into your TV.

Four-fifths of LG`s large displays are produced right here and in 2015, the
company announced plans to invest an additional $9 billion to build a new
plant right here on the ground.

The thing is that this place is about as close as you can get to North
Korean border. How close? Let`s go for a drive.

Well, we can`t drive any further. The demilitarized zone, the heavily
fortified border between North and South Korea is just a few miles past the
river and we are clocking in at 17 minutes to go nine miles from those LG
facilities. I think it really goes to show just how vulnerable some of
South Korea`s electronic factories are if a war were to break out, because
any conflict will ripple from the global economy from here.

For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon along the DMZ.


HERERA: Coming up, he shut down Twitter and says he even hacked Russian
hackers when he was a teenager. Now, he`s telling his story.


GRIFFETH: After all the news and revelations we`ve been hearing in the
past year, you might think the Russian hackers are unstoppable. But one
American 15-year-old actually hacked the notorious cyber criminals.

In an exclusive interview right now, this young hacker known as Cosmo the
God reveals how he went from being wanted by the government as a teen to
raking in millions by helping companies defend against cyber criminals.

Andrea Day has our story for us.


the God.


DAY: Did you feel like a god?


DAY: But Cosmo the God was really just a 15-year-old hacker named Eric

TAYLOR: Worth doing that I can`t even explain —

DAY: Taylor`s revealing his story exclusively to CNBC for the first time.
He showed up for the interview with his new business partner Marshal Webb.
They`re working on a cybersecurity start-up called Path, one of the ways
Taylor says he`s turning his life around.

So, what`s your message to American teenagers who want to become hackers?

TAYLOR: Join the good side and don`t go to the dark side of the Internet.

DAY: Taylor says he fell hard for the dark side when he was just 12, then
he joined a group of hackers. They shut down Twitter for about an hour in
2012. Taylor says they also access customer account data of major
corporations, like Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), AT&T (NYSE:T)
and Netflix (NASDAQ:NFLX), sometimes gaining access to customer`s personal

While company`s did not acknowledge this access, companies like Amazon
(NASDAQ:AMZN) did tell CNBC that the security of Amazon (NASDAQ:AMZN)
customer accounts is one of our highest priorities. Then the group moved
on to bigger fish, high profile targets like Kim Kardashian, Michelle Obama
and Donald Trump.

You exposed sensitive information for dozens of celebrities and
politicians. What were you thinking?

TAYLOR: I was thinking that I had nothing to lose and I wanted to make it

DAY: Cosmo the God was on fire, posting the info on a Website for the
world to see. Social Security numbers, home addresses even full credit

TAYLOR: I would publish a new celebrity every day.

DAY: So, how did he get the secret info? He says he hacked into a Russian
Website that had already stolen the data and had it up for sale. Taylor
says he convinced him to hand it over free of charge by promising not to
take their site down.

So, you hacked the Russian hackers?


DAY: How did that feel?

TAYLOR: I was 15 and it felt amazing because I don`t like Russia, but I
had to talk to them to get in with them and it worked.

DAY: And listen to what he did after he posted the info?

TAYLOR: I made the site seem like it came back to Russia and the media
published it as Russian hackers, published U.S. officials. I knew the FBI
was going to catch up to me.

DAY: He was sitting in his bedroom when federal agents busted down the
door and took him down in cuffs.

Do you regret publishing that information?

TAYLOR: Yes, 100 percent.

DAY: He`s now watching from a distance as hackers cash in on crypto

TAYLOR: It`s only getting bigger because people want money and they want
it fast, and the easiest way is to hijack at cryptocurrency wallet and
there`s no trace.

DAY: As a hacker, what`s your biggest fear?

TAYLOR: Having my crypto currency wallet hijacked.

DAY: So, tell me this honestly, is there any bit of you that wants to go
back and grab a bit of that action?

TAYLOR: Of course, and I think there always will be, but I can never go
back to the dark side of hacking.

DAY: His latest project, the cybersecurity start-up Path. It uses block
chain to help companies figure out if their Website is loading correctly on
devices around the world. They plan to recruit computer users all over to
make it work, offering them tokens in exchange for letting Path access
their computer.

the last two months.

DAY: And after Taylor was busted at his mom`s house, he pleaded guilty to
a string of high profile computer crimes and walked away with probation.
That was his fourth arrest and hopefully the last time he says he`ll go
down for cyber crimes.



HERERA: Well, before we go, here`s another look at the rally on Wall
Street. The Dow advanced 238 points, the Nasdaq was up 114, and the S&P
500 rose 27.

GRIFFETH: I`m guessing he did well in math.

HERERA: I would think so, yes, or statistics or something like that.

That does it for us tonight. I`m Sue Herera. Thanks for joining us.

GRIFFETH: I`m Bill Griffeth, thanks. We`ll see you tomorrow.


Nightly Business Report transcripts and video are available on-line post
broadcast at The program is transcribed by ASC Services II
Media, LLC. Updates may be posted at a later date. The views of our guests
and commentators are their own and do not necessarily represent the views
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Business Report is not and should not be considered as investment advice.
(c) 2018 CNBC, Inc.


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